SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the thirteen weeks ended March 26, 1995 or
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from _______ to _______
Commission File Number 1-4825
WEYERHAEUSER COMPANY
A Washington Corporation (IRS Employer Identification
No. 91-0470860)
Tacoma, Washington 98477
Telephone (206) 924-2345
Securities registered pursuant to Section 12(b) of the Act:
Name of Each Exchange on
Title of Each Class Which Registered
- ------------------------------- -------------------------
Common Shares ($1.25 par value) Midwest Stock Exchange
New York Stock Exchange
Pacific Stock Exchange
Tokyo Stock Exchange
Rights to Purchase Cumulative Preference
Shares, Fourth Series New York Stock Exchange
Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the Securities
Exchange Act of 1934 during the preceding 12 months (or for such
shorter period that the registrant was required to file such reports),
and (2) has been subject to such filing requirements for the past 90
days. Yes X No ___.
The number of shares outstanding of the registrant's class of common
stock, as of May 5, 1995 was 205,706,971 common shares ($1.25
par value).
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<TABLE>
<CAPTION>
WEYERHAEUSER COMPANY AND SUBSIDIARIES
Index to Form 10-Q Filing
For the Thirteen Weeks Ended March 26, 1995
Page No.
--------
<S> <C>
Part I. Financial Information
Item 1. Financial Statements
Consolidated Statement of Earnings 5
Consolidated Balance Sheet 6-7
Consolidated Statement of Cash Flows 8-9
Notes to Financial Statements 10-15
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 16-18
Part II. Other Information
Item 1. Legal Proceedings 19-20
Item 2. Changes in Securities (not applicable)
Item 3. Defaults upon Senior Securities (not applicable)
Item 4. Submission of Matters to a Vote of Security Holders (not applicable)
Item 5. Other Information (not applicable)
Item 6. Exhibits and Reports on Form 8-K 20
</TABLE>
The financial information included in this report has been prepared in
conformity with accounting practices and methods reflected in the
financial statements included in the annual report (Form 10-K) filed
with the Securities and Exchange Commission for the year ended
December 25, 1994. Though not examined by independent public
accountants, the financial information reflects, in the opinion of
management, all adjustments necessary to present a fair statement of
results for the interim periods indicated. The results of operations
for the thirteen-week period ending March 26, 1995 should not be
regarded as necessarily indicative of the results that may be expected
for the full year.
Signature
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf
by the undersigned thereto duly authorized.
WEYERHAEUSER COMPANY
By /s/ K. J. Stancato
------------------
K. J. Stancato
Duly Authorized Officer and
Principal Accounting Officer
May 8, 1995
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Weyerhaeuser Company
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<TABLE>
<CAPTION>
WEYERHAEUSER COMPANY AND SUBSIDIARIES
____________
CONSOLIDATED EARNINGS
For the thirteen week periods ended
March 26, 1995 and March 27, 1994
(Dollar amounts in millions except per share figures)
(Unaudited)
Thirteen weeks ended: March 26, March 27,
1995 1994
--------- ---------
<S> <C> <C>
Net sales and revenues:
Weyerhaeuser $ 2,563 $ 2,126
Real estate and financial services 182 260
-------- ---------
2,745 2,386
-------- ---------
Costs and expenses:
Weyerhaeuser:
Costs of products sold 1,811 1,552
Depreciation, amortization and fee stumpage 129 116
Selling, general and administrative expenses 160 147
Research and development expenses 11 11
Taxes other than payroll and income taxes 43 39
-------- --------
2,154 1,865
-------- --------
Real estate and financial services:
Costs and operating expenses 130 186
Depreciation and amortization 9 8
Selling, general and administrative expenses 31 44
Taxes other than payroll and income taxes 2 2
-------- --------
172 240
-------- --------
2,326 2,105
-------- --------
Operating income 419 281
Interest expense and other:
Weyerhaeuser:
Interest expense incurred 64 57
Less interest capitalized 6 8
Other income (expense), net (22) (15)
Real estate and financial services:
Interest expense incurred 33 38
Less interest capitalized 18 20
Other income (expense), net 4 5
-------- --------
Earnings before income taxes 328 204
Income taxes (Note 2) 121 77
-------- --------
Net earnings $ 207 $ 127
======== ========
Per common share (Note 1):
Net earnings $ 1.00 $ .62
======== ========
Dividends paid $ .30 $ .30
======== ========
See Accompanying Notes to Financial Statements
</TABLE>
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Weyerhaeuser Company
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<TABLE>
<CAPTION>
WEYERHAEUSER COMPANY AND SUBSIDIARIES
____________
CONSOLIDATED BALANCE SHEET
March 26, 1995 and December 25, 1994
(Dollar amounts in millions)
March 26, Dec. 25,
1995 1994
----------- ---------
(Unaudited)
<S> <C> <C>
Assets
- ------
Weyerhaeuser
Current assets:
Cash and short-term investments $ 331 $ 39
Receivables, less allowances 964 909
Inventories (Note 3) 870 746
Prepaid expenses 314 284
------- -------
Total current assets 2,479 1,978
Property and equipment (Note 4) 6,134 6,196
Construction in progress 698 603
Timber and timberlands at cost, less fee
stumpage charged to disposals 604 610
Other assets and deferred charges 206 212
------- -------
Total assets 10,121 9,599
------- -------
Real estate and financial services
Cash and short-term investments,
including restricted deposits 59 73
Receivables, less discounts and allowances 89 116
Mortgage and construction notes and
mortgage loans receivable 425 472
Investments 269 247
Mortgage-backed certificates and
other pledged financial instruments 205 211
Real estate in process of development,
less reserves 688 668
Land being processed for development,
less reserves 747 738
Deferred acquisition costs 96 92
Investments in and advances to joint ventures
and limited partnerships, less reserves 438 430
Other assets 341 361
------- -------
Total assets 3,357 3,408
------- -------
$13,478 $13,007
======= =======
See Accompanying Notes to Financial Statements
</TABLE>
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Weyerhaeuser Company
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<TABLE>
<CAPTION>
March 26, Dec. 25,
1995 1994
----------- ---------
(Unaudited)
<S> <C> <C>
Liabilities and shareholders' interest
- --------------------------------------
Weyerhaeuser
Current liabilities:
Notes payable $ 4 $ 6
Current maturities of long-term debt 315 321
Accounts payable 681 645
Accrued liabilities (Note 5) 677 695
-------- --------
Total current liabilities 1,677 1,667
Long-term debt (Note 7) 3,001 2,713
Deferred income taxes 1,036 986
Deferred pension and other liabilities 524 525
Minority interest in subsidiaries 103 103
Commitments and contingencies (Note 9) -- --
-------- --------
Total liabilities 6,341 5,994
-------- --------
Real estate and financial services
Notes payable and commercial paper 686 416
Collateralized mortgage obligation bonds 178 183
Long-term debt (Note 7) 1,491 1,770
Other liabilities 349 354
Commitments and contingencies (Note 9) -- --
-------- --------
Total liabilities 2,704 2,723
-------- --------
Shareholders' interest (Note 8)
Common shares: authorized 400,000,000 shares,
issued 206,072,890 shares, $1.25 par value 258 258
Other capital 416 416
Cumulative translation adjustment (110) (107)
Retained earnings 3,878 3,733
Treasury common shares, at cost:
435,013 and 455,387 (9) (10)
-------- --------
Total shareholders' interest 4,433 4,290
-------- --------
$13,478 $13,007
======== ========
</TABLE>
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Weyerhaeuser Company
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<TABLE>
<CAPTION>
WEYERHAEUSER COMPANY AND SUBSIDIARIES
____________
CONSOLIDATED STATEMENT OF CASH FLOWS
For the thirteen-week periods ended March 26, 1995 and March 27, 1994
(Dollar amounts in millions)
(Unaudited)
Consolidated
---------------------
March 26, March 27,
1995 1994
---------- ---------
<S> <C> <C>
Cash flows provided by operations:
Net earnings $ 207 $ 127
Non-cash charges to income:
Depreciation, amortization and fee stumpage 138 124
Deferred income taxes, net 51 31
Changes in working capital:
Receivables (28) (30)
Inventories, prepaid expenses, real estate and land (183) (130)
Mortgages held for sale 38 46
Other liabilities 17 2
(Gain) loss on disposition of assets 2 (2)
Other 20 21
--------- ---------
Net cash provided by operations 262 189
--------- ---------
Cash flows from investing in the business:
Property and equipment (172) (261)
Timber and timberlands (11) (7)
Mortgage and investment securities acquired (23) (2)
Proceeds from sale of:
Property and equipment 9 22
Mortgage and investment securities 7 52
Other 1 (3)
--------- ---------
Net cash flows from investing in the business (189) (199)
--------- ---------
Cash flows from financing activities:
Sale of debentures, notes and CMO bonds 554 122
Sale of industrial revenue bonds -- 50
Notes and commercial paper borrowings, net 90 60
Cash dividends on common shares (62) (62)
Payments on debentures, notes, bank credit
agreements, capital leases,
industrial revenue bonds and CMO bonds (378) (235)
Exercise of stock options 1 14
Other -- 8
--------- ---------
Net cash flows from financing activities 205 (43)
--------- ---------
Net increase (decrease) in cash and short-term investments 278 (53)
Cash and short-term investments at beginning of year 112 160
--------- ---------
Cash and short-term investments at end of period $ 390 $ 107
========= =========
Cash paid (received) during the year for:
Interest, net of amount capitalized $ 97 $ 96
========= =========
Income taxes $ (2) $ 25
========= =========
See Accompanying Notes to Financial Statements
</TABLE>
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Weyerhaeuser Company
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<TABLE>
<CAPTION>
Real Estate and
Weyerhaeuser Financial Services
--------------------- ---------------------
March 26, March 27, March 26, March 27,
1995 1994 1995 1994
--------- --------- --------- ---------
<c <C> <C> <C>
$ 205 $ 121 $ 2 $ 6
129 116 9 8
50 31 1 --
(55) (38) 27 8
(154) (98) (29) (32)
-- -- 38 46
21 74 (4) (72)
2 2 -- (4)
11 2 9 19
--------- --------- --------- ---------
209 210 53 (21)
--------- --------- --------- ---------
(170) (259) (2) (2)
(11) (7) -- --
-- -- (23) (2)
9 2 -- 20
-- -- 7 52
36 (15) (35) 12
--------- --------- --------- ---------
(136) (279) (53) 80
--------- --------- --------- ---------
554 116 -- 6
-- 50 -- --
(107) 31 197 29
(62) (62) -- --
(167) (125) (211) (110)
1 14 -- --
-- 8 -- --
--------- --------- --------- ---------
219 32 (14) (75)
--------- --------- --------- ---------
292 (37) (14) (16)
39 73 73 87
--------- --------- --------- ---------
$ 331 $ 36 $ 59 $ 71
========= ========= ========= =========
$ 81 $ 76 $ 16 $ 20
========= ========= ========= =========
$ 13 $ (43) $ (15) $ 68
========= ========= ========= =========
</TABLE>
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Weyerhaeuser Company
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WEYERHAEUSER COMPANY AND SUBSIDIARIES
____________
NOTES TO FINANCIAL STATEMENTS
For the thirteen-week periods ended March 26, 1995 and March 27, 1994
Note 1: Summary of Significant Accounting Policies
Consolidation
The consolidated financial statements include the accounts of
Weyerhaeuser Company and all of its majority-owned domestic and
foreign subsidiaries. Significant intercompany transactions and
accounts are eliminated.
Certain of the consolidated financial statements and notes to
financial statements are presented in two groupings: (1) Weyerhaeuser
Company (Weyerhaeuser, or the company), which is principally engaged
in the growing and harvesting of timber and the manufacture,
distribution and sale of forest products, and (2) Real estate and
financial services, which includes Weyerhaeuser Real Estate Company
(WRECO), which is involved in real estate development and
construction, and Weyerhaeuser Financial Services, Inc. (WFS), whose
principal subsidiary is Weyerhaeuser Mortgage Company (WMC).
Changes in Accounting Principles
In November 1992, the Financial Accounting Standards Board (FASB)
issued Statement of Financial Accounting Standards (SFAS) No. 112,
"Employers' Accounting for Postemployment Benefits," which requires
accrual accounting be used for the cost of benefits provided to former
or inactive employees who have not yet retired. The company adopted
this pronouncement in the first quarter of 1994, by recording a
cumulative catch-up charge to earnings. The adoption of this
pronouncement did not have a significant impact on the company's
results of operations or its financial position.
In 1994, the company implemented SFAS No. 115, "Accounting for Certain
Investments in Debt and Equity Securities," which addresses accounting
and reporting for investments in equity securities that have readily
determinable fair values, and for all investments in debt securities.
The adoption of this pronouncement did not have a significant impact
on the company's results of operations or its financial position.
Also in 1994, the company adopted SFAS No. 119, "Disclosure about
Derivative Financial Instruments and Fair Value of Financial
Instruments," which requires more complete disclosures on derivative
financial instruments.
In May 1993, the FASB issued SFAS No. 114, "Accounting by Creditors
for Impairment of a Loan," which requires creditors to measure
impairment based on the present value of expected future cash flows
discounted at the loan's effective interest rate. In October 1994,
the FASB issued SFAS No. 118, "Accounting by Creditors for Impairment
of a Loan--Income Recognition and Disclosures," which amended SFAS
No. 114 to allow creditors to use existing methods for recognizing
interest on impaired loans and also requires creditors to disclose
certain information about how interest income was recognized on
impaired loans. Both of these pronouncements were implemented by the
company in the first quarter of 1995. The adoption of these
pronouncements did not have a significant impact on results of
operations or financial position.
In March 1995, the FASB issued SFAS No. 121, "Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to Be
Disposed Of," which is effective for financial statements for fiscal
years beginning after December 15, 1995. Due to the recent release of
this pronouncement, the company has not determined the impact of the
implementation of the pronouncement on its results of operations or
financial position.
<PAGE>
Weyerhaeuser Company
- -11-
Net Earnings Per Common Share
Net earnings per common share are based on the weighted average number
of common shares outstanding during the respective periods. Average
common equivalent shares (stock options) outstanding have not been
included, as the computation would not be dilutive. Weighted average
common shares outstanding were 205,628,338 and 205,429,534 at
March 26, 1995 and March 27, 1994 respectively.
Fully diluted earnings-per-share amounts are not applicable because
the effect of the conversion of the stock options is not dilutive.
Derivatives
The company has only limited involvement with derivative financial
instruments and does not use them for trading purposes. They are used
to manage well-defined interest rate and foreign exchange risks.
These include:
. Foreign exchange contracts, which are hedges for foreign
denominated accounts receivable and payable, have gains or losses
recognized at settlement date.
. Interest rate swaps entered into with major banks or financial
institutions in which the company pays a fixed rate and receives a
floating rate with the interest payments being calculated on a
notional amount. The premiums received by the company on the sale
of these swaps are treated as deferred income and amortized
against interest expense over the term of the agreements.
. Hedging transactions entered into by the company's mortgage
banking subsidiary to protect both the completed loan inventory
and loans in process against changes in interest rates. The
financial instruments used to manage interest rate risk are
forward sales commitments, interest rate futures and options.
The company's use of derivatives does not have a significant effect on
the company's results of operations or its financial position.
Cash and Short-Term Investments
For purposes of cash flow and fair value reporting, short-term
investments with original maturities of 90 days or less are considered
as cash equivalents. Short-term investments are stated at cost, which
approximates market.
Inventories
Inventories are stated at the lower of cost or market. Cost includes
labor, materials and production overhead. The last-in, first-out
(LIFO) method is used to cost the majority of domestic raw materials,
in process and finished goods inventories; either the first-in, first-
out (FIFO) or average cost method is used to cost all other
inventories.
Property and Equipment
The company's property accounts are maintained on an individual asset
basis. Betterments and replacements of major units are capitalized.
Maintenance, repairs and minor replacements are expensed.
Depreciation is provided generally on the straight-line or unit-of-
production methods at rates based on estimated service lives.
Amortization of logging rail and truck roads is provided generally as
timber is harvested and is based upon rates determined with reference
to the volume of timber estimated to be removed over such facilities.
The cost and related depreciation of property sold or retired is
removed from the property and allowance for depreciation accounts and
gain or loss is recorded.
<PAGE>
Weyerhaeuser Company
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Timber and Timberlands
Timber and timberlands are carried at cost less fee stumpage charged
to disposals. Fee stumpage is the cost of standing timber and is
charged to fee timber disposals as fee timber is harvested, lost as
the result of casualty or sold. Stumpage rates are determined with
reference to the cost of timber and the related volume of timber
estimated to be recoverable. Timber carrying costs are expensed as
incurred.
Income Taxes
Deferred income taxes are provided to reflect temporary differences
between the financial and tax bases of assets and liabilities using
presently enacted tax rates and laws.
Pension Plans
The company has pension plans covering most of its employees. The
U.S. plan covering salaried employees provides pension benefits based
on the employee's highest monthly earnings for five consecutive years
during the final ten years before retirement. Plans covering hourly
employees generally provide benefits of stated amounts for each year
of service. Contributions to U.S. plans are based on funding
standards established by the Employee Retirement Income Security Act
of 1974 (ERISA).
Postretirement Benefits Other Than Pensions
In addition to providing pension benefits, the company provides
certain health care and life insurance benefits for some retired
employees and accrues the expected future cost of these benefits for
its current eligible retirees and some employees. All of the
company's salaried employees and some hourly employees may become
eligible for these benefits when they retire.
Reclassifications
Certain reclassifications have been made to conform prior years' data
to the current format.
WRECO
WRECO recognizes income from the sales of single family housing units
when construction has been completed, required down payments received
and title has passed to the customer. Income from the sales of multi-
family, commercial properties, developed lots and undeveloped land is
recognized when required down payments are received and other income
recognition criteria are satisfied.
Real estate is stated at the lower of cost or net realizable value.
The determination of net realizable value is based on WRECO's plans
for its property and its financial ability to carry out such plans.
Changes in future market demand, interest rates and company plans may
affect net realizable value. Land, land development and construction
costs, including capitalized carrying costs, are accumulated and
allocated to individual units in proportion to relative sales value.
Weyerhaeuser Financial Services
WMC and its subsidiaries are primarily engaged in the mortgage banking
industry and also offer insurance services.
. Mortgage notes held for sale are stated at the lower of cost or
market, which is computed by the aggregate method (unrealized
losses are offset by unrealized gains). Hedging transactions are
entered into to protect the inventory value from increases in
interest rates. Hedge positions are also used to protect the
pipeline of loan applications in process from increases in
interest rates. Hedging gains and losses realized during the
commitment and warehousing period are deferred to the extent of
unrealized gains on the related mortgage loans held for sale.
. The costs associated with purchasing mortgage servicing rights are
deferred. Excess service fees result from loan sales in which WMC
retains the loan servicing rights and are based on the present
value of future servicing revenue less a normal servicing fee,
based upon the estimated remaining life of the loans sold.
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Weyerhaeuser Company
- -13-
The Mortgage Securities Corporations were formed for the limited
purpose of issuing collateralized mortgage obligation bonds (CMO
bonds) secured by Government National Mortgage Association and Federal
National Mortgage Association certificates. The CMO bonds are the
sole obligation of the issuer, and neither the company nor any
affiliated company has guaranteed or is otherwise obligated with
respect to the CMO bonds.
. The mortgage-backed certificates are carried at par value adjusted
for any unamortized discount or premium. These discounts or
premiums are amortized using a method that approximates the
effective interest method over the estimated life of the
underlying mortgage loans.
. CMO bonds are carried at unamortized cost. Discounts and premiums
are amortized using a method that approximates the effective
interest method over their estimated life.
Note 2: Income Taxes
Provisions for income taxes include the following:
<TABLE>
<CAPTION>
Thirteen Weeks Ended
---------------------
March 26, March 27,
Dollar amounts in millions 1995 1994
--------- ---------
<S> <C> <C>
Federal:
Current $ 36 $ 31
Deferred 47 26
--------- ---------
83 57
--------- ---------
State:
Current 6 5
Deferred 3 2
--------- ---------
9 7
--------- ---------
Foreign:
Current 28 10
Deferred 1 3
--------- ---------
29 13
--------- ---------
Total $ 121 $ 77
========= ========
</TABLE>
Income tax provisions for interim periods are based on the current
best estimate of the effective tax rate expected to be applicable for
the full year. The effective tax rate reflects anticipated tax
credits, foreign taxes and other tax planning alternatives.
For the periods ended March 26, 1995 and March 27, 1994, the company's
provision for income taxes as a percent of earnings before income
taxes is greater than the 35% federal statutory rate due principally
to the effect of state income taxes. The effective tax rates for the
thirteen week periods ended March 26, 1995 and March 27, 1994 are 37%
and 38% respectively.
Deferred taxes are provided for the temporary differences between the
financial and tax bases of assets and liabilities, applying presently
enacted tax rates and laws. The major sources of these temporary
differences include depreciable and depletable assets, real estate,
restructuring reserves, and pension and retiree health care
liabilities.
<PAGE>
Weyerhaeuser Company
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<TABLE>
Note 3: Inventories
<CAPTION>
Inventories consist of the following:
March 26, Dec. 25,
Dollar amounts in millions 1995 1994
--------- ---------
<S> <C> <C>
Logs and chips $ 145 $ 108
Lumber, plywood and panels 145 115
Pulp, newsprint and paper 99 88
Containerboard, paperboard and containers 76 56
Other products 132 112
Materials and supplies 273 267
--------- ---------
$ 870 $ 746
========= =========
</TABLE>
<TABLE>
Note 4: Property and Equipment
<CAPTION>
March 26, Dec. 25,
Dollar amounts in millions 1995 1994
--------- ---------
<S> <C> <C>
Property and equipment, at cost:
Land $ 159 $ 159
Buildings and improvements 1,512 1,509
Machinery and equipment 8,577 8,557
Rail and truck roads and other 624 628
--------- ---------
10,872 10,853
Less allowance for depreciation
and amortization 4,738 4,657
--------- ---------
$ 6,134 $ 6,196
========= =========
</TABLE>
<TABLE>
Note 5: Accrued Liabilities
<CAPTION>
Accrued liabilities are as follows:
March 26, Dec. 25,
Dollar amounts in millions 1995 1994
--------- ---------
<S> <C> <C>
Payroll - wages and salaries, incentive awards,
retirement and vacation pay $ 215 $ 217
Taxes - social security and real
and personal property 63 63
Interest 44 67
Income taxes 101 105
Other 254 243
--------- ---------
$ 677 $ 695
========= =========
</TABLE>
Note 6: Short-Term Debt
The company has short-term bank credit lines that provide for
borrowings of up to the total amount of $725 million, all of which
could be availed by the company, WRECO and WMC at March 26, 1995 and
December 25, 1994.
No portion of these lines has been availed of by the company, WRECO or
WMC at March 26, 1995 or December 25, 1994. None of the entities
referred to herein is a guarantor of the borrowings of the others.
WMC has short-term special credit lines that provide for borrowings of
up to $235 million at March 26, 1995 and December 25, 1994.
Borrowings against these lines were $114 million and $85 million as of
March 26, 1995 and December 25, 1994, respectively.
<PAGE>
Weyerhaeuser Company
- -15-
Note 7: Long-Term Debt
At March 26, 1995 and December 25, 1994, the company's lines of credit
include a five-year competitive advance and revolving credit facility
agreement entered into in July 1994 with a group of banks that
provides for borrowings of up to the total amount of $1.55 billion,
all of which can be availed of by the company, and $1 billion, which
can be availed by WMC. Borrowings are at LIBOR or other such interest
rates as mutually agreed to between the borrower and lending banks.
No portion of this line has been availed of by the company or WMC at
March 26, 1995 or December 25, 1994.
At March 26, 1995 and December 25, 1994, WMC had $35 million
outstanding against a one-year evergreen credit commitment entered
into in 1990.
WMC has a revolving credit agreement with a bank to provide for: (1)
borrowings of up to $35 million for two years at prime rate, LIBOR or
such other rate as may be agreed upon by WMC and the banks; (2) a
commitment fee based on the unused credit; and (3) conversion of the
notes as of July 1, 1997, to a five-year term loan payable in equal
quarterly installments. At March 26, 1995 and December 25, 1994, $20
million was outstanding under this agreement.
During 1994, WFS amended a three-year term loan facility that was
entered into in 1992 which provides for: (1) borrowings of up to $555
million and $405 million at March 26, 1995 and December 25, 1994,
respectively, at LIBOR or other such rates as may be agreed upon by
WFS and the banks; and (2) a commitment fee on the unused portion of
the credit. $555 million and $405 million were outstanding under this
facility at March 26, 1995 and December 25, 1994, respectively.
To the extent that these credit commitments expire more than one year
after the balance sheet date and are unused, an equal amount of
commercial paper is classifiable as long-term debt. Amounts so
classified are:
<TABLE>
<CAPTION>
March 26, Dec. 25,
Dollar amounts in millions 1995 1994
--------- ---------
<S> <C> <C>
Weyerhaeuser $ 304 $ 411
Real estate and financial services 357 429
</TABLE>
Total interest costs incurred by WRECO are capitalized and will
ultimately be accounted for as an element of operating costs.
The company's compensating balance agreements were not significant.
Note 8: Shareholders' Interest
Common shares reserved for stock option plans and for conversion of
issued and outstanding convertible subordinated debentures were
6,765,000 shares at March 26, 1995 and 5,688,000 shares at
December 25, 1994.
Note 9: Commitments and Contingencies
The company's capital expenditures have averaged about $855 million in
recent years but are expected to be approximately $1.2 billion in
1995; however, the 1995 expenditure level could be increased or
decreased as a consequence of future economic conditions.
The company is a party to legal proceedings and environmental matters
generally incidental to its business. Although the final outcome of
any legal proceeding or environmental matter is subject to a great
many variables and cannot be predicted with any degree of certainty,
the company presently believes that the ultimate outcome resulting
from these proceedings and matters would not have a material effect on
the company's current financial position, liquidity or results of
operations; however, in any given future reporting period such
proceedings or matters could have a material effect on results of
operations.
<PAGE>
Weyerhaeuser Company
- -16-
WEYERHAEUSER COMPANY AND SUBSIDIARIES
Management's Discussion and Analysis of Financial
Condition and Results of Operations
<TABLE>
Net sales and revenues and earnings before interest expense and income
taxes by segment are:
<CAPTION>
Thirteen Weeks Ended
---------------------
March 26, March 27,
Dollar amounts in millions 1995 1994
--------- ---------
<S> <C> <C>
Net sales and revenues:
Timberlands and wood products $ 1,187 $ 1,182
Pulp, paper and packaging 1,328 903
Real estate 140 200
Financial services 42 60
Corporate and other 48 41
--------- ---------
$ 2,745 $ 2,386
========= =========
Earnings before interest expense and
income taxes:
Timberlands and wood products $ 239 $ 283
Pulp, paper and packaging 210 5
Real estate 1 1
Financial services(1) 3 6
Corporate and other (62) (42)
--------- ---------
$ 391 $ 253
========= =========
(1) Includes net interest expense of $10 million and $18
million related to the financial services businesses.
</TABLE>
Results of Operations
Net sales for the first quarter of 1995 were a record $2.75 billion,
up 15 percent from the $2.39 billion reported in the same quarter of
1994. Net earnings from operations in the current quarter, also a
record, were $207 million or $1.00 per common share, up from the
$127 million or 62 cents per common share in the 1994 first quarter.
The timberlands and wood products segment's operating earnings in the
1995 first quarter were $239 million compared with $283 million in the
same quarter a year ago. Although lower domestic wood product prices
had an unfavorable impact on segment earnings when compared to the
1994 first quarter, overall performance remained strong due to
continued strength in the export markets. Third party sales and total
production volumes for the major products in this segment for the
thirteen weeks ended March 26, 1995 and March 27, 1994 were as
follows:
<TABLE>
Third Party Sales Total Production
--------------------- ---------------------
Thirteen Weeks Ended Thirteen Weeks Ended
--------------------- ---------------------
March 26, March 27, March 26, March 27,
Products (in millions) 1995 1994 1995 1994
- ------------------------------ --------- --------- --------- ---------
<S> <C> <C> <C> <C>
Raw materials-cubic feet 136 149 -- --
Logs-cubic feet -- -- 238 182
Softwood lumber-board feet 1,042 974 841 803
Softwood plywood and veneer-
square feet (3/8") 611 547 313 309
Composite panels-square feet (3/4") 159 159 146 141
Oriented strand board-square
feet (3/8") 430 410 402 384
Hardboard-square feet (7/16") 39 39 29 32
Hardwood lumber-board feet 66 58 60 55
Hardwood doors (thousands) 154 145 156 141
</TABLE>
<PAGE>
Weyerhaeuser Company
- -17-
The pulp, paper and packaging segment's operating earnings were
$210 million for the quarter compared with $5 million reported in the
same quarter of 1994. Significant price improvement in the pulp,
newsprint, paper and packaging markets was the key factor in this
continued strong recovery in this segment. Third party sales and
total production volumes for the major products in this segment for
the thirteen weeks ended March 26, 1995 and March 27, 1994 were as
follows:
<TABLE>
Third Party Sales Total Production
--------------------- ---------------------
Thirteen Weeks Ended Thirteen Weeks Ended
--------------------- ---------------------
March 26, March 27, March 26, March 27,
Products (in thousands) 1995 1994 1995 1994
- ------------------------------ --------- --------- --------- ---------
<S> <C> <C> <C> <C>
Pulp--air-dry metric tons 589 498 542 527
Newsprint-metric tons 160 165 167 161
Paper-tons 267 247 263 257
Paperboard-tons 56 50 57 50
Containerboard-tons 62 67 613 566
Packaging-MSF 8,188 8,162 8,650 8,639
Recycling-tons 265 229 577 479
</TABLE>
The company's real estate and financial services segments earned
$4 million in the quarter compared with $7 million in the year ago
quarter. Higher interest rates have had an impact on the real estate
segment as new home sales nationally are at the slowest rate in almost
three years. The higher interest rates, as well as the seasonality of
home sales, contributed to the lower earnings performance of the
financial services segment as both residential loan funding and loan
application volume were down from the prior year's first quarter.
The increase in the company's cost of products sold from year to year
is consistent with the increases in sales activity for the timberlands
and wood products and pulp, paper and packaging segments, while the
decrease in costs and operating expenses of the real estate and
financial services segments are in alignment with the lower sales
activities in those segments.
Other income (expense) is an aggregation of both recurring and
occasional non-operating income and expense items and, as a result,
fluctuates from period to period. No individual income or (expense)
item for the thirteen week periods ended March 26, 1995 and March 27,
1994 was significant in relation to net earnings.
Liquidity and Capital Resources
During the quarter, the company called the $150 million 9-3/8%
debentures which were due in 1998 and sold two new issues,
$300 million 8.5% debentures and $250 million 7.95% debentures, both
due in 2025. The proceeds from the latter issue were received at
month-end and were invested in marketable securities, accounting for
the majority of the $292 million increase in cash and short-term
investments at the end of the quarter. Other items included in the
total working capital increase of $491 million from year-end 1994 were
increases in receivables and inventories partially offset by an
increase in accounts payable.
The change in cash provided by operations in the real estate and
financial services segments from 1994 to 1995 was primarily a result
of: (1) loan sales continuing to exceed originations in the company's
mortgage banking business; and (2) the cash payment of accrued taxes
in 1994 related to higher 1993 income. Debt reductions for this
segment were $25 million on the medium term notes in 1995 and a
$50 million 9.42% note in 1994.
During the first quarter of both 1995 and 1994, the company paid
$62 million in cash dividends. Capital expenditures for 1995 first
quarter amounted to $183 million compared to $268 million in the first
quarter of 1994. The cash required to meet these and other company
needs was generated principally from internal cash flow. The company
currently anticipates capital expenditures in 1995 to approximate
$1.2 billion.
Earnings before interest expense and income taxes plus non-cash
charges for the thirteen week periods ended March 26, 1995 and
March 27, 1994 were $284 million and $327 million, respectively, for
the timberlands and wood products segment, and $290 million and
$74 million, respectively, for the pulp, paper and packaging segment.
Capital expenditures during this period were $55 million by
timberlands and wood products, $115 million for pulp, paper and
packaging and $13 million by other segments. Expenditures in the
pulp, paper and packaging segment were significantly lower than the
$215 million spent in the 1994 first quarter as the company's
modernization projects at its Longview, Washington and Plymouth,
North Carolina complexes are nearing completion.
<PAGE>
Weyerhaeuser Company
- -18-
The company is committed to the maintenance of a sound, conservative
capital structure. This commitment is based upon two considerations:
the obligation to protect the underlying interests of its shareholders
and lenders and the desire to have access, at all times, to all major
financial markets.
The important elements of the policy governing the company's capital
structure are as follows:
. To view separately the capital structures of Weyerhaeuser Company,
Weyerhaeuser Real Estate Company and Weyerhaeuser Financial
Services, Inc. given the very different nature of their assets and
business activities. The amount of debt and equity associated
with the capital structure of each will reflect the basic earnings
capacity, real value and unique liquidity characteristics of the
assets dedicated to that business.
. The combination of maturing short-term debt and the structure of
long-term debt will be managed judiciously to minimize liquidity
risk.
Other Items
In April, the company announced that it is in private discussions with
potential financial investors about the possibility of forming a joint-
venture partnership that would make investments in timberlands and
related assets around the world. The size of the venture, of which
the company would be a 50 percent owner, would depend upon the
specific investments made, but could ultimately reach $1.5 billion
over time. The company's contribution to the joint venture would be
U.S. timberlands with a market value of approximately $260 million and
cash, while the investors group would provide cash contributions of an
equal amount.
At the 1995 annual meeting in April, the company announced that the
board of directors had approved:
. Raising the company's quarter dividend rate from 30 cents to
40 cents a share effective with the second quarter of 1995. This
will result in an annualized rate of $1.60 per common share.
. Authorizing the repurchase of up to 10 million shares of the
company's common stock, which is about 5 percent of the current
shares outstanding. The company plans to complete the repurchase
within a year.
Contingencies
The company is a party to legal proceedings and environmental matters
generally incidental to its business. Although the final outcome of
any legal proceeding or environmental matter is subject to a great
many variables and cannot be predicted with any degree of certainty,
the company presently believes that the ultimate outcome resulting
from these proceedings and matters would not have a material effect on
the company's current financial position, liquidity or results of
operations; however, in any given future reporting period such
proceedings or matters could have a material effect on results of
operations.
<PAGE>
Weyerhaeuser Company
- -19-
Part II. Other Information
Item 1. Legal Proceedings
Trial began in May 1992 in a federal income tax refund case that the
company filed in July 1989 in the United States Claims Court. The
complaint seeks a refund of federal income taxes that the company
contends it overpaid in 1977 through 1983. The alleged overpayments
are the result of the disallowance of certain timber casualty losses
and certain deductions claimed by the company arising from export
transactions. The refund sought was approximately $29 million, plus
statutory interest from the dates of the alleged overpayments. The
company settled the portion of the case relating to export
transactions and received a tax refund of approximately $10 million,
plus statutory interest. In September 1994, the United States Court
of Federal Claims issued an opinion on the casualty loss issues which
will result in the allowance of additional tax refunds of
approximately $2 million, plus statutory interest. The company has
appealed the decision.
On March 6, 1992, the company filed a complaint in the Superior Court
for King County, Washington against a number of insurance companies.
The complaint seeks a declaratory judgment that the insurance
companies named as defendants are obligated under the terms and
conditions of the policies sold by them to the company to defend the
company and to pay, on the company's behalf, certain claims asserted
against the company. The claims relate to alleged environmental
damage to third-party sites and to some of the company's own property
to which allegedly toxic material was delivered or on which allegedly
toxic material was placed in the past. Since December 1992, the
company has agreed to settlements with all but one of the defendants.
In July 1993, the trial court dismissed fourteen of the thirty-five
sites named in the complaint. In May 1994, the Washington State
Supreme Court reversed the trial court's dismissal of those sites.
Trial on two sites against the sole remaining defendant began in
October 1994 and resulted in a jury verdict which awarded damages to
the company with respect to one of the sites. Trial on several
additional sites is set for February 1996.
The company has undertaken a review of all its wood products
facilities for compliance with the Prevention of Significant
Deterioration (PSD) regulations and has disclosed PSD compliance
issues to certain state agencies and the Environmental Protection
Agency (EPA). The company and the State of Mississippi Department of
Environmental Quality have entered into a consent agreement concerning
PSD regulations at company facilities in Philadelphia and Bruce,
Mississippi, involving penalties of $170 thousand. The State of
Alabama has issued a compliance order with penalties totaling $100
thousand for noncompliance with PSD regulations at the company's
Millport facility. The company and North Carolina's Division of
Environmental Management have entered into a consent agreement for its
Elkin, North Carolina facility involving penalties of $140 thousand
and concluded a separate consent agreement for its Moncure, North
Carolina facility involving penalties of $140 thousand. The company
has signed a consent agreement including penalties of $140 thousand
relating to PSD issues at the company's Wright City, Oklahoma facility
with the State of Oklahoma Department of Environmental Quality. The
company has signed consent agreements with the State of Arkansas
concerning PSD related issues for facilities in Dierks and Mountain
Pine, involving $375 thousand in total penalties for both facilities.
Region V of the EPA has issued a Notice of Violation for permit
violations at the company's Grayling, Michigan facility. The company
has negotiated a settlement of those alleged permit violations and
other PSD related issues with the Michigan Department of Natural
Resources that involves penalties of approximately $499 thousand. The
company has entered into negotiations with the Lane County, Oregon
Regional Air Pollution Control Authority concerning a draft Notice of
Violation which would seek penalties for alleged PSD violations at the
company's Springfield, Oregon particleboard operations. In September
1992, the EPA issued a Section 114 Request for Information concerning
PSD compliance at the company's oriented strand board and medium
density fiberboard mills. In June 1993, the EPA issued a similar
Section 114 request for the company's plywood and particleboard mills.
The EPA issued a Notice of Violation in August 1994 for nine company
facilities (including the Plymouth, North Carolina and Adel, Georgia
wood products facilities and all of the facilities mentioned above
except the Grayling, Michigan, Springfield, Oregon and Bruce,
Mississippi wood products facilities) as part of its national PSD
enforcement action against the company and other forest product
companies.
The company has also undertaken a review of its ten major pulp and
paper facilities to evaluate the facilities' compliance with PSD
regulations, and has disclosed the potential of PSD compliance issues
to seven state agencies and the EPA. The company is currently working
with the states to negotiate settlements for the alleged violations.
In April 1995, EPA Region X issued a Notice of Violation to the
company and to North Pacific Paper Corporation (NORPAC), a joint
venture in which the company has an 80 percent ownership interest.
The Notice of Violation addresses alleged PSD violations at NORPAC's
Longview, Washington, newsprint manufacturing facility.
The Washington State Department of Ecology has investigated the
accidental release of chlorine, chlorine dioxide and non-condensable
gasses at the company's pulp mill in Longview, in July 1994 and has
issued a $10 thousand penalty for the chlorine release and a
$5 thousand penalty for the non-condensable gasses release. The EPA
is also investigating the accidental chlorine release and has
indicated that it will seek penalties against the company.
<PAGE>
Weyerhaeuser Company
- -20-
Part II. Other Information
Item 1. Legal Proceedings - continued
On April 9, 1993, the company entered into a Stipulated Final Order
(SFO) with the Oregon Department of Environmental Quality for alleged
air emissions in excess of permit levels and PSD noncompliance at the
company's North Bend, Oregon containerboard facility. The SFO
establishes a compliance schedule for installing control technology.
A supplemental SFO assessed upfront penalties of $247 thousand and
penalties of 500 dollars per day until compliance is demonstrated.
The SFO required demonstrated compliance by December 1993 and a
historical evaluation of the facility's PSD status. The company has
submitted a plant site PSD review to the state and is awaiting its
review.
In August 1992, the EPA issued an administrative complaint for the
assessment of $215 thousand in civil penalties against the company's
Longview, Washington facility. The penalties are based upon alleged
violations of the record keeping and storage provisions of the
polychlorinated biphenyl (PCB) rules contained in the Toxic Substances
Control Act. The company and the EPA settled the complaint for a
maximum penalty of $118 thousand, 50% of which was paid when the
consent agreement was signed. Payment of the remaining 50% was
eliminated based on the company's expenditure of $118 thousand to
dispose of PCB contaminated transformers at the Longview facility. On
October 27, 1994, the EPA issued a Notice of Case Closure,
acknowledging that the company had satisfied all of the terms and
conditions of the consent agreement.
On November 2, 1992, an action was filed against the company in the
Circuit Court for the First Judicial District of Hinds County,
Mississippi, on behalf of a purported class of riparian property
owners in Mississippi and Alabama whose properties are located on the
Tennessee Tombigbee Waterway, Aliceville Lake, Cedar Creek and the
Magoway Creek. The complaint seeks $1 billion in compensatory and
punitive damages for diminution in property value, personal injuries
and mental anguish allegedly resulting from the discharge of purported
hazardous substances, including dioxins and furans, by the company's
pulp and paper mill in Columbus, Mississippi, and the alleged
fraudulent concealments of such discharge. The complaint also seeks
an injunction prohibiting future releases and the removal of hazardous
substances allegedly released in the past. On August 20, 1993, a
companion action was filed in Greene County, Alabama, on behalf of a
similar purported class of riparian owners with essentially the same
claims as the Mississippi case. By order dated April 5, 1995, venue
of the Alabama action was transferred to Sumter County, Alabama. On
January 20, 1995, the court in the Alabama action certified a class of
all persons who, as of the date the action commenced, were riparian
owners, lessees and licensees of properties located on the Tennessee
Tombigbee Waterway in Greene, Sumter, Pickens and Marengo counties,
Alabama, and Lowndes and Noxubee counties, Mississippi, to determine
whether the company is liable to the members of the class for
compensatory and/or punitive damages and to determine the amount of
punitive damages, if any, to be awarded to the class as a whole. By
order dated April 12, 1995, the geographical boundaries of the class
were amended to run from below the Columbus mill's wastewater
discharge pipe to the point where the Black Warrior River joins the
Tennessee Tombigbee Waterway. The class is estimated to range from
approximately 1,000 to 1,500 members. Neither the Mississippi action
nor the Alabama action is presently scheduled for trial.
The company was sued in the United States District Court for the
District of Alaska by two corporations with which the company had
entered into financing arrangements, a marketing agreement, and a
technical assistance agreement. The plaintiffs claimed the company
breached contractual and common law duties by allegedly failing to
adequately market and ship the plaintiffs' products, misrepresenting
its marketing and shipping capabilities, and acting to further its
interests at the plaintiffs' expense. The plaintiffs in the First
Amended Complaint, filed in May 1992, sought an unstated amount of
damages described as more than $50 million in compensatory damages
plus not less than $75 million in punitive damages. The claim for
punitive damages was dismissed by the trial court. In March 1994, a
jury returned a verdict against the company awarding damages of $1.2
million. Both the company and the plaintiffs have appealed.
The company is also a party to various proceedings relating to the
clean-up of hazardous waste sites under the Comprehensive
Environmental Response Compensation and Liability Act, commonly known
as "Superfund," and similar state laws. The EPA and/or various state
agencies have notified the company that it may be a potentially
responsible party with respect to other hazardous waste sites as to
which no proceedings have been instituted against the company. The
company is also a party to other legal proceedings generally
incidental to its business. Although the final outcome of any legal
proceeding is subject to a great many variables and cannot be
predicted with any degree of certainty, the company presently believes
that any ultimate outcome resulting from the legal proceedings
discussed herein, or all of them combined, would not have a material
effect on the company's current financial position, liquidity or
results of operations; however, in any given future reporting period,
such legal proceedings could have a material effect on results of
operations.
Item 6. Exhibits and Reports on Form 8-K
(a) Not applicable.
(b) The registrant has not filed a report on Form 8-K during the
fiscal quarter for which this report on Form 10-Q is filed.
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1000000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-END> MAR-26-1995
<CASH> 390
<SECURITIES> 0
<RECEIVABLES> 1053
<ALLOWANCES> 0
<INVENTORY> 870
<CURRENT-ASSETS> 2479
<PP&E> 6134
<DEPRECIATION> 0
<TOTAL-ASSETS> 13478
<CURRENT-LIABILITIES> 1677
<BONDS> 4670
<COMMON> 258
0
0
<OTHER-SE> 4175
<TOTAL-LIABILITY-AND-EQUITY> 13478
<SALES> 2745
<TOTAL-REVENUES> 2745
<CGS> 1941
<TOTAL-COSTS> 1941
<OTHER-EXPENSES> 183
<LOSS-PROVISION> 1
<INTEREST-EXPENSE> 73
<INCOME-PRETAX> 328
<INCOME-TAX> 121
<INCOME-CONTINUING> 207
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 207
<EPS-PRIMARY> 1.00
<EPS-DILUTED> 1.00
</TABLE>
